The topic of the last post was keeping a written record of all transactions in your bank account(s). This is known as a “ledger”. Part 2 today discusses the importance of reconciling your statements to your ledger.
There are four important reasons for reconciling your bank statements to your ledger. First, reviewing your transactions for the transaction period will help you identify any fraud against your account. If a scammer has gotten a hold of your account, debit card, or credit card information, the scammer will have unlimited access to your account. Although you would think the scammer would immediately deplete your account, that is not always the case. Some scammers will steal from you slowly. A dollar or two here, and a dollar or two there, will add up to a lot of money over time, especially if you are making decisions regarding purchases on what is shown as the “available” balance on your banking app or online. Imagine for a moment that a scammer steals $0.50 from you every month and does this to thousands of accounts (including credit card accounts) for many months. How much would the scammer be able to get? They are able to get away with this many times because they know that a majority of people are not reconciling their accounts. And, because they use small amounts, customers are not alerted by the payment. Some will consider it a bank fee or service charge. Reviewing your statements and reconciling your ledger will allow to catch any suspicion activity and rectify the illegal access quickly.
Second, reconciling your account(s) lets you see where your money is going. You might notice more money is being spent on a particular item or retailer than your originally thought. When the actual transactions are in front of you, you are more likely to notice a pattern and can more easily adapt and make decisions for the future.
Third, you can notice any errors that have occurred during the transaction period. Many people believe that banks and credit unions are immune to errors when it comes to processing transactions. I assure you, this is not true. My experience in accounting/bookkeeping has made me aware of this. I have noticed checks that have cleared for different amounts than that for which they were written. I have also seen deposits applied to different accounts. This is common if you have multiple accounts with the same financial institution. Also, errors might occur when you’re entering your transaction amounts on your ledger, which would also make you out of balance after reconciling your accounts.
And finally, reconciling your accounts using your statements will alert you to any differences in fees, if any, your financial institution may be charging. I have seen bank charges as high as $20.00 if a minimum daily balance is not kept in an account. I have also seen a charge of $15.00 for having a paper statement sent in lieu of electronic statements. Because many people do not review their statements, these fees get assessed and not recorded by customers in their ledgers, causing their “available” balance to be less than they think. Banks and credit unions will notify customers of changes to the policies regarding accounts. However, let’s be honest … in everyday busy life, these notices may not be read or even received. However, these charges will show on the statements.
If you haven’t reconciled a bank statement to your ledger before, it may take you a couple of months to get the hang of it. However, once you get on track, reconciliation will only take you about 15 to 20 minutes if you keep an updated and accurate ledger. Here are a few easy steps to begin reconciling your statements:
1. Mark off all transactions (payments and deposits) that are shown on your statement
2. If any transactions shown on your statement are not listed in your ledger, add them to your ledger only if they are legitimate transactions.
3. Once all of your cleared transactions are entered on your ledger, use the following formula to determine if you’re in balance:
a. Statement Beginning Balance – Cleared Payments + Cleared Deposits = Statement Ending Balance
b. Statement Ending Balance – Uncleared Payments + Uncleared Deposits = Ledger Balance
4. If your calculation is equal to your Ledger Balance, congratulations!! You have successfully balanced/reconciled your statement to your ledger. If your balance is off, then it’s time for some self investigation. Did you forget to enter a transaction? Did you use the correct beginning balance? Is there a transaction on your statement that does not match your ledger? Did you or the bank/credit union transpose numbers on the transaction? Go through your transactions again and double check to be sure all amounts are correct.
Hint: If you are out of balance and the difference is evenly divisible by 9, it is likely that a number has been transposed. For example, if you made a purchase for $120 but you recorded $102 in your ledger, your would be out of balance by $18. Since “18” is evenly divisible by 9, I would suggest to look for this error first. This also applies to cents. If you made a deposit for $100.75 but recorded $100.57 in your ledger, you will be out of balance $0.18 … also divisble by 9.
Thank you again for reading!
